Tuesday, July 18, 2017

THE WORKING CLASS IS TAPPED OUT. NO MORE LEFT IDEAS

The latest leftist craze is a guaranteed income. The idea is everyone deserves something and giving everyone something would save money. The idea, if not examined, makes sense. This would be especially true, if a large portion, like 95%, of the bureaucracy could be eliminated. It might also be true, if the amount took away all the subsidized housing, all the Medicaid, all the education support. But, the chances of this are less than me drinking all the salt water in the Pacific Ocean.

The question starts, who gets the money? Then, it is how much? Then, what does it replace? Lastly, who is going to pay? These are important questions for a variety of reasons. If everyone is going to get it, then those that work are going to have to pay enough in taxes and enough in taxes is going to have to be collected out of the money given others to pay for the program. Also, there is going to have to be a huge employment program for the eliminated bureaucrats, who are largely not fit for private employment. The private sector already has enough bureaucrats.

What I am about to write probably goes astray of the fake science known as Keynesian or mainstream economics, but it is in fact true. The math cannot add up in any other fashion, when all is said and done. That factor is that the working class pays all taxes in the end. This is not understood, because there is so much money created by government debt and many people that work for a living don't pay any income tax, only employment taxes. This will be true regardless of whether taxes on the rich are low or close to 100%, or we will see a decline in the economy that most people aren't prepared to accept.

There are a couple of facts that are not advertised to the public at large. This is merely Federal Government, not the state and local governments around the country, which makes the picture even bleaker. The added Federal debt for fiscal year 2016, regardless of what was stated as the deficit, was $1.4 trillion. If you don't believe me, look for yourself for the debt level October 1, 2015 and then September 30, 2016. We were told we had a great economy, but the truth is the Federal government is rapidly going broke and the populace cannot be taxed enough to pay for what the government is consuming and paying out.

The second fact is there are roughly 120 million private jobs and we are spending $3.6 trillion on an annual basis. That expenditure equals $30,000 a private job. Being that a full 50% of jobs in the US now pay $30,000 a year or less, this equates to 100% of the income of half the job holders in the US. Being that the majority of the rest make $75,000 or less, we are talking about 40% or more of the productive income of 85% or so of the private sector workers in the USA. American credit fails, which it is sure to do, if the current trend persists and the system cannot go on. Then, we see the collapse of the currency, the liquidation of all private property into the hands of a few and dark age serfdom returning to the modern world.

The wealthy pay taxes only on income received. Either income is received from other wealthy people or from the working class. Nothing can be received that isn't first paid or financed. This means that working class people merely return the majority of their money received back to those that employ them and the cycle continues. Rich taxes are paid out of money spent by the working class and in a real capitalist economy, this is net of credit, with the excess being recycled as investment payrolls. Throw in credit and the game gets out of balance, which is what creates the business cycle. This is for another post or you can study the masterpiece by Ludwig von Mises, The Theory of Money and Credit. If you can understand that in sum nothing can be paid that isn't received or financed, you can figure this one out. The taxes either have to be paid our of what most of us are paid or what we spend.

Now, lets do the math. There are roughly 330 million people in the United States. Lets say we pay them all $1000 a month. This amounts to $330 billion a month or $4 trillion a year. What does this eliminate? Does it eliminate Section 8? Medicaid? Social Security? Medicare? None of the above? Maybe it merely eliminates 1 million bureaucrats at $100K a year? Take off $100 billion. Put in another $1.1 trillion and we have a net budget of $5 trillion, a 35% increase of the current budget. If Medicare and Social Security are continued, that is another $1.2 trillion or so, which brings us to $6.2 trillion. We are now looking at a cost of over $50,000 per private job. The families currently making $30,000 to $40,000 a year have to consider not working, though with 2 children, their income would grow to $70,000 to $80,000 a year. Their share of the government would be $50,000 for 1 job and $100,000 for 2 jobs. We all know they would be exempt from paying anything other than Social Security taxes, so the burden would fall to the next income bracket upward.

The $100K household, of the same size would have their income expand to $140,000. This is the typical middle class 2 income family. It would also be the households that would start bearing the costs that couldn't be paid by the lower income classes. Their $30,000 share per job or $60,000, in the case of a 2 worker household would grow to $50,000 or $100,000. The later would place them in the same shape they were in before the distribution. The former would improve that household's prorate share from $70K to $90K. Either way, something besides the status quo would require this household pay more in taxes in some fashion. These are the households that send their kids to college, buy a new car every 4 or 5 years, buy some new furniture once in awhile, etc. They also go to restaurants, employing kitchen help and wait staff. If the standard of living is destroyed in this class, the economy ceases to prosper, which is what has occurred in much of America.

So, do we give it to everyone or do we give it to a select few that the politicians select and leave the rest of us alone? In effect, required taxation would deprive anyone above the median of any benefit. If you tax the rich and leave the rest of us alone, how does that play? Lets say 30 million are eligible? How many more quit work and get on the gravy train? Remember, maybe 70 million are retired and 120 million are privately employed. Throw in another 30 million or so in government. About 75 million are under 19. That leaves 65 million roughly that don't work. Of the 120 million, likely another 40 million either need some kind of assistance or struggle along. How many of these 40 million would merely quit working and take the money? There are place in the USA you can live pretty cheap. Not here in Collin County Texas, but in the abandoned middle part of the country, there are many cities and towns where a couple could take $2000 a month and get along.

I have considered this idea before, as Senator George McGovern brought up the idea in the 1972 election. It was foreign to the morals of the country that everyone could be paid for not working. I examined the idea because so much has changed in the bureaucracy geared toward the welfare state. Don't ever fool yourself into thinking the bureaucracy works for us. The bureaucracy works for the bureaucracy. This is not to say there aren't people in the bureaucracy that care a lot for we the people, but like anyone, there is always number 1. This is the backbone of the swamp. Getting rid of them would make the idea more plausible, but in my case, it was that the idea might have headed off the massive growth in this group.

If there was an amount that would get rid of Medicare, Medicaid, Food stamps, Section 8 and all the other help programs, this would be a viable program, only if it got rid of the entire bureaucracy that services these programs. Of course, Medicare would still have to be funded by a deduction from the check. Medicaid would also have to be deducted. These would be required, if one wasn't earning money in the private sector.

These are the cases for and against. The question then becomes, what would happen if the guarantee was put in? How many people would quit work? What would the price of labor for bottom end jobs be? Would people retire at age 50? If so, what would they do? People produce goods and services and if people don't work, the amount of goods and services are no longer provided.

Also, what does this do to the level of taxation for those that continue to work? What happens to the structure of credit and the value of the currency? Both of these factors, regardless of how basically good or bad the idea appears, are the real questions. They could tax capital, but in confiscating capital wealth, the country runs the risk of consuming the seed corn and stagnating real progress. At what point does the emerging world no longer take American or European money and we find ourselves in the same boat as Venezuela? A guaranteed check is fine and dandy, as long as it will buy what one needs. Once it doesn't and the money collapses, there is no amount of printing that will ever restore the purchasing power of the check. This isn't an opinion. It is economic history. Then it comes down to who eats who?